As generations grow older the people’s choices and views tend to change; businesses that relied on one generation of teen/young adult consumers are finding this out the hard way, Over the last couple of years, fashionable mid»market apparel companies that are primarily marketed towards younger demographics have been suffering heavy revenue and profit losses, leading to bankruptcy from many companies, including: Deb Shop‘s, Delia‘s, and Wet Seal, While once prominent in the market companies, such as Hollister, The Gap, and Abercrombie and Finch, are shutting down stores, cutting employees, and struggling to stay financially profitable. The failures of companies within the apparel industry is in part due to the rise of fast fashion retailers, such as: Zara, Forever 21, and H&M. The rise of fast fashion has even had an effect on the apparel lines in super retailer stores as even Target and Macy’s have recently restructured their apparel departments in order to shift focus away from the teen market.
Fast fashion retailers are succeeding from their counterparts due to a focus in providing low-cost clothing that is also fashionable; these stores cycle its products in and out quickly, often only keeping a particular product for three to four weeks, This gives fast fashion retailers a product turnover rate of over 12 times per year, whereas traditional apparel companies were seeing about 5 or 6 product turnovers per year. Where does Levi’s Fit in? While Levi‘s may not be a direct competitor in the teen market to the companies previously mentioned, these actions and trends still affect the company greatly. Levi’s may not be known as the most fashionable brand, especially among the younger generations, but they are known as a moderately priced, affordable brand.
Additionally, the company has also strived to become more “hip” as of late, producing marketing campaigns to restructure the company’s image. The area that these fast fashion retailers do compete with Levi’s in, however, is the low- cost segment. While the Levi‘s brand is not the cheapest low-costjean, the company does compete within this market segment more so than it competes with the likes of a mid-cost or high-cost type of company. Would a consumer care to spend money on a pair of Levi’s that he or she deems as plain if they can spend the same amount of money on a pair of jeans from a fast retailer that are considered more fashionable? This gives Levi’s a few choices The company can continue on down the path that it is on and look to carve out its own niche and market segments as they have done in the past, or they can look to emulate and innovate what has been successful in the current market Either strategy can be combined, innovated, and restructured in the future, but each would also come with a different set of challenges.
How is the Bottom Line Effected? If Levi’s were to emulate the inventory strategies employed by fast fashion retailers, the company would need to increase its inventory turnover rate, which would likely drive down the amount of inventory held at a given time to lower numbers. There could also be expenses in increasing the company’s speed to market and responsiveness; supply lines may need to be readjusted and renegotiatedl This move could help the company move into market segments where previous successes have been limited. Levi’s cannot simply allow the fast fashion retailers to absorb all of the profits and customers that the mid-cost apparel stores have lost and with these companies failing/losing customers, there is a lot of potential for increased revenue and market shares.
Since the fast fashion retailer strategy would cause inventory valuation to be decreased and inventory turnover to increase, the company may also see an increase to cash flow from operating activities. Additionally, if the company were to need a quick infusion of cash, it would have less inventory to sell, but that inventory would sell much quicker, so there is a bit of pro and con in that regard. The bottom line is that the ability to quickly provide a product that is in demand and constantly changing to fit the market’s demands has proven to be a successful strategy while staying in the past has doomed many companies. Levi’s can find a way to leverage these new trend to steal market shares away from mid growth companies, which will impact the company‘s financial statements in many positive ways.